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Awarding Price, Contract Performance, and Bids Screening: Evidence from Procurement Auctions

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  • Francesco Decarolis

Abstract

This paper presents evidence on the perverse trade-off that first price auctions induce between low prices at the awarding stage and poor ex post performance when bids are not binding commitments. By exploiting the different timing with which first price auctions were introduced in Italy to procure public works, this study finds that at least half of the cost savings from lower winning prices are lost because of ex post renegotiation. Screening the lowest price bid for its responsiveness prevents performance worsening but also reduces the initial cost savings by a third and induces delays in awarding the contract.

Suggested Citation

  • Francesco Decarolis, 2014. "Awarding Price, Contract Performance, and Bids Screening: Evidence from Procurement Auctions," American Economic Journal: Applied Economics, American Economic Association, vol. 6(1), pages 108-132, January.
    • Handle: RePEc:aea:aejapp:v:6:y:2014:i:1:p:108-32
    Note: DOI: 10.1257/app.6.1.108
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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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